Royal Mail CEO unexpectedly quits role

Employment & Skills | Latest News | South East | Transport & Distribution

Royal Mail’s CEO Rico Back has shockingly quit with immediate effect after the group reported a £22m drop in revenue.

The number of letters being via Royal Mail also decreased by more than a third which severely hit revenues.

He will be replaced by Keith Williams, who becomes interim Executive Chairman. Meanwhile, Stuart Simpson will become the CEO until a permanent replacement can be found.

In a statement, Mr Back said: “It has been a privilege to lead a company that is so much a part of UK life at this crucial time in its history.

“I am proud of what I, together with our dedicated and loyal team, helped to build in Royal Mail and GLS.

“I look forward to seeing Royal Mail transform into a parcels-led, international delivery company that continues to touch the lives of millions across the world.”

Industry reaction

Dr Paul Simmonds, Warwick Business School said: “There are undoubtedly difficult times ahead for Royal Mail. The unexpected and immediate departure of CEO Rico Back comes during a period of great uncertainty for the business that, under predecessor Moya Green, had performed relatively well since privatisation in late 2013.

“As the problems have mounted over the last 12 months or so, it seems increasingly clear that Moya Green chose to leave at exactly the right moment; did she see the writing on the wall?

“The Royal Mail’s new Chairman, Keith Williams, takes the reins as Executive Chairman and he has a significant number of issues to grapple with and not all are coronavirus related.

“Before the virus piled pressure onto all businesses, Royal Mail was seeing falling profits, high ongoing capital investment requirements (dividends were being reduced to help fund expenditure), an outstanding Communication Workers Union (CWU) strike mandate, continuing (and increasing) falls (7-9% pa) in letter volumes and faltering restructuring initiatives (productivity improvements of around 1.5% are below the 2% targeted).

“The Royal Mail also continues to be hamstrung by the Universal Service Obligation which effectively commits it to providing mail collection and delivery services across the UK at prices that do not vary according to distance. This expensive obligation impacts costs and profitability and puts it at a disadvantage to competitors who focus on profitable parcels operations.

“None of these issues is easily or quickly resolved and Rico Back has probably paid the price for the slow rate of progress and under his watch the share price has fallen from its May 2018 peak of 631p (market capitalisation £8.6bn) to around 170p (mkt. cap. £1.7bn) resulting in demotion from the FTSE100 to the FTSE250. His relationships with the union and employees certainly haven’t helped either nor has the recent acquisition of 5% of the business by Daniel Kretinsky and some vague rumours of takeover bids.

“To be fair, it’s not all bad. On the positive side, despite competition from the likes of Amazon, Deutsche Post (DHL) and FedEx, parcel volumes continue to increase and the pandemic has further fuelled online shopping volumes although that may be tempered in the coming months by the inevitable squeeze on household finances. Furthermore, Royal Mail possess an enviable UK-wide delivery infrastructure and also has profitable operations overseas which are expanding.

“In the short term, in addition to navigating Royal Mail through the coronavirus crisis, Keith Williams will have to engage in constructive dialogue with the CWU to re-invigorate productivity initiatives as that is the only way to future profitability assuming the potential gains outweigh their costs in terms of the increased labour costs needed to win employee approval.

“The Royal Mail has achieved significant productivity improvements since privatisation and so there is both the scope and capability. In addition, he may also seek to make the recent relaxation of the USO – Saturday letter deliveries and collections have been temporarily suspended due to the coronavirus crisis – permanent although in future he may want to press for further concessions. The appointment of a credible and experienced CEO is also key to the future of Royal Mail.”

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